TIRANA, July 24 – Poor performance in government revenues during the first half of this year is making the objective of keeping the budget deficit under 3 percent of the GDP an impossible target without a budget review or extra privatization revenues. Latest Finance Ministry data show government revenues for the first half of this year slightly accelerated to 3.7 percent but yet failed to meet targets by 9.1 billion lek (Euro 65 million). Although total expenditure was 2.4 percent lower than planned, the budget deficit at the end of June 2012 stood at 16.7 billion lek, which is 10 billion lek or 78.5 percent more than government had initially planned.
Data show government collected 652 million lek from privatizations in the first six months of this year which is six times higher than planned. All money collected from privatizations went to finance the budget deficit. Internal borrowing also soared to 14.6 billion lek in the first half of this year. The figure is 3.6 times higher than planned.
The tax performance reveals that domestic consumption, the key driver of the Albanian economy, remain sluggish. The value added tax which indirectly measures consumption grew by a mere 1.4 percent while the excise tax levied on so-called luxury products such as fuel, tobacco and alcoholic beverages was down by 0.4 percent compared to the first half of 2011.
Businesses continue facing difficulty with profits which shrank by a record 22.3 percent, the worst performance since the first half of 2007.
The Finance Ministry also reports a 2.1 percent shrink in personal income tax.
Interest expenditure during the first half of 2012 was at around 20 billion lek, up 2.2 percent compared to the first half of 2011.
Investments
Public investments during the first half of this year dropped to 24 billion lek, down 27 percent compared to the same period last year and 10 percent less than planned in the 2012 budget. The situation hints government spending on investments will have a lower impact in supporting the Albanian economy this year, already suffering from poor domestic consumption and lower exports.
Deficit in the pension system
The deficit in the pension system during the first half of 2012 grew to around 18 billion lek, up from around 16 billion lek a year ago.
In the first half of 2012 government collected 24.5 billion in social security contributions and spent around 42.5 billion lek. Finance Ministry data in the 2012 draft budget report show the deficit in the pension scheme in 2012 will rise to 38.188 billion lek, (USD 380 million).
The Albanian government is receiving World Bank assistance to reform the pension system.
Budget review
Government is expected to review downward its overoptimistic 7.8 percent growth for revenues target and cut its GDP growth expectations to 3 percent, down from 4.3 percent currently next September after completing the privatization of four small and medium sized hydropower plants and state owned giant Albpetrol. Government expects to collect USD 150 million from the sale of the four HPPs and another USD 300 million from Albpetrol. The tenders have been postponed for next September.
Under the current budget, government expects revenues to increase by 7.8 percent and the economy to grow by 4.3 percent for 2012, which is twice higher compared to what international financial institutions forecast. Experts have earlier noted that a mere 1.75 percent growth in government revenues for 2011, the lowest in the past 11 years and failure to meet revenues targets by 4 percent even after mid-year budget cuts in 2011 is the clearest sign government has drafted an overoptimistic budget for 2012 and will be forced to make sharp mid-year cuts as global crisis impacts become tougher and the Eurozone is expected to face mild recession.
